The Department of Labor held a two-day hearing last week to gather input on its new proposed fiduciary rule, according to Think Advisor.
The proposal is called the Retirement Security Rule: Definition of an Investment Advice Fiduciary. It would update the definition of an investment advice fiduciary under the Employee Retirement Income Security Act. The rule would apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and others.
The DOL said its proposal would “require trusted investment advisers to adhere to high standards of care and loyalty when they make investment recommendations and avoid recommendations that favor their financial and other interests at the expense of retirement savers.”
45 groups asked to testify at the hearing, including the American Council of Life Insurers, the American Retirement Association, and the Securities Industry and Financial Markets Association (SIFMA), representing broker-dealers, investment banks and asset managers.
Lisa Gomez, assistant secretary of Labor for the Employee Benefits Security Administration, delivered the opening remarks and said the DOL proposed the rule “to make sure that when individual retirement investors turn to investment professionals for sound advice rooted in their best interest, they get just that — advice that is prudent, loyal, candid and free from overcharges.” The DOL has said that some financial advisers put their interests before their clients’ interests, resulting in reduced returns and higher costs for investors.
Speaking in opposition to the rule was SIFMA’s associate general counsel, Lisa Bleier. She testified that the DOL’s proposal “is overly broad, unnecessary, and inconsistent with existing federal regulations such as the SEC’s Regulation Best Interest.”
Bleier said the proposal could limit investors’ choice in advisors while also limiting access to advice.
“There are so many more areas of retirement law that deserve our attention, including helping more individuals save for retirement and for emergencies, increasing exposure to financial literacy programs, and helping individuals make their savings last through retirement,” said Bleier.
She said the DOL’s proposal was not needed due to other safeguards to protect investors, including the Securities and Exchange Commission’s Regulation Best Interest. She also noted the Labor Department’s Prohibited Transaction Exemption 2020-02 and the National Association of Insurance Commissioners’ best-interest model.
Expressing support for the DOL rule was the American Retirement Association (ARA), which said an update is needed to the current definition of investment advice fiduciary, adopted in 1975, which was written at a time when IRAs were less common and 401(k) plans did not exist,
Brian Graff, CEO of ARA, said, “Whether or not there’s an ongoing advice relationship on a so-called regular basis, it is simply nonsensical to give an unsophisticated small business owner, who is arguably making a more consequential set of investment decisions on behalf of his or her employees, less investor protection than that same small business owner would likely get with respect to investment advice received on his or her own personal investments.”
The deadline for public comment on the new fiduciary rule is Jan. 2. Last month, the DOL denied requests from industry groups to extend the 60-day public comment period.
The attorneys at Hyman Cotter PC include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Hyman Cotter PC at 312-291-4600 or through our online contact form.
